GSEs Report Second Quarter Earnings
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae and Freddie Mac reported improved financial results for the second quarter of 2020.
The two government sponsored enterprises released their quarterly earnings last week. The reports provided further evidence of a strong housing market during the COVID-19 pandemic.
Fannie reported net income of $2.5 billion for the second quarter, which ended June 30. This was up significantly from $461 million in the first quarter. Fannie said the increase was primarily due to a decline in credit-related expense in the second quarter. First-quarter credit expense was driven by an allowance for loans losses caused by COVID-19.
Freddie reported net income of $1.8 billion for the second quarter, compared to $173 million in the first quarter. Although Freddie attributed lower credit-related expense to some of the increase, it was mostly the result of higher investment gains of $1.2 billion.
Compared with the second quarter of 2019, Fannie’s net income fell nearly 26 percent, while Freddie experienced in 18 percent jump.
As of June 30, Fannie’s net worth was $16.5 billion, up $2.6 billion from the end of the previous quarter. Based on its agreement with the U.S. Department of the Treasury, the company may retain quarterly earnings until its net worth reaches $25 billion.
Freddie’s net worth increased to $11.4 billion, from $9.5 billion in the previous quarter. The company is allowed to keep all earnings until its net worth reaches $20 billion.
Fannie reported that 5.7 percent of its single-family loans, totaling 972,000 loans, in its book of business were in forbearance because of the pandemic. Freddie said 3.8 percent of its single-family loans were delinquent and in forbearance.
Fannie Mae provided $542 billion in single-family liquidity to the mortgage market in the first half of 2020, enabling the financing of approximately 593,000 home purchases and 1.35 million refinancings.
Fannie’s average charged guaranty fee on newly acquired conventional single-family loans, net of TCCA fees, decreased 2.7 basis points to 46.7 basis points in the second quarter of 2020 from 49.4 basis points in the first quarter of 2020. This was driven primarily by the stronger credit profile of the single-family loans acquired in the second quarter of 2020.
The company also provided $34 billion in multifamily financing in the first half of 2020, which enabled the financing of 373,000 units. More than 90 percent of the multifamily units the company financed were affordable to families earning at or below 120 percent of the area median income.
Freddie reported new business activity of $232 billion in the second quarter, an increase of $94 billion from the first quarter. The increase was driven by higher refinance activity. In fact, 609,000 of the 827,000 homes Freddie provided funding for were refinance loans.
First-time homebuyers represented 48 percent of Freddie’s single-family purchase loans in the second quarter. The weighted average original loan-to-value (LTV) ratio of new business activity improved to 72 percent for the second quarter from 74 percent for the prior quarter.
The weighted average original credit score was 758, up from 752 in the prior quarter. The average guarantee fee rate charged on new acquisitions was 48 basis points, down slightly from 49 basis points for the prior quarter.
First-time homebuyers represented 48% of new single-family purchase loans in the second quarter of 2020.
Freddie’s new business activity in the multifamily market was $20 billion for the second quarter, more than double the amount for the previous quarter. Financing was provided on 202,000 rental units, 95 percent of which were affordable to families earning at or below 120 percent of area median income.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
